Column : Royalty runs in an MNCís bloodstream

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SummaryOn January 22, 2013, the board of Hindustan Unilever announced that it will enter into a new agreement, effective February 1, 2013, with Unilever for the provision of technology, trade mark licence and other services.

need to be hard-nosed if they want to keep these abusive payments in check. ACC and Ambuja Cements recently proposed to start charging higher royalty. Investors heaved a sigh of relief that it is only 1% of sales and only an additional R100 crore will be paid. But there is nothing to show for this outflowóno technology, no brand. As the HUL example shows, it does not take time for 1% to become 3%. While it is tempting to ask for a reversion to the earlier regulatory regime, there are a few steps that can be taken immediately with regard to disclosures and voting.

Motherhood statements like ď(Unilever) is committed to ensuring that the support in terms of new products, innovations, technologies and services is commensurate with the needs of HUL to win in the market placeĒ should be replaced by hard numbers. What are market practices, what are competitors paying, how much faster than the market can shareholder expect their companies to grow or how much more profitable will the companies now be?

These agreements donít come to vote, and maybe they should. ACC and Ambuja Cements have set a precedent, but not gone the complete distance. Itís time that only disinterested parties be permitted to vote, and such agreements be approved by majority of minority investors support.

Multinational owners have had a free lunch for far too long.

The author is managing director, Institutional Investor Advisory Services India, a proxy advisory firm dedicated to providing participants in the Indian market with independent opinion, research and data on corporate governance issues as well as voting recommendations on shareholder resolutions. Views are personal

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